Pedestrians cross a busy intersection in the Central business district of Hong Kong on Oct 26, 2022. (EDMOND TANG / CHINA DAILY)

Recruitment and investment sentiments remain optimistic among Hong Kong’s small and medium-sized enterprises in the third quarter, despite external headwinds that are casting a shadow over the global trading hub, according to the Standard Chartered Hong Kong SME leading business index.

The Hong Kong Productivity Council announced on Thursday that the indices of recruitment sentiment and investment sentiment stood at 51 and 50.6 respectively, down from 54.4 and 51.9 in the second quarter.

A score above 50 on the survey’s indices suggests respondents have confidence in the business environment, while a reading below 50 reflects a pessimistic sentiment. The overall index declined from 52.8 in the previous quarter to 46.7 in the third quarter

A score above 50 on the survey’s indices suggests respondents have confidence in the business environment, while a reading below 50 reflects a pessimistic sentiment.

The overall index declined from 52.8 in the previous quarter to 46.7 in the third quarter.

Lawrence Cheung Chi-chong, chief innovation officer of HKPC, said that the fall indicates that the positive short-term sentiment which was generated when cross-border travel resumed with the Chinese mainland, has diminished.

The decrease in the manufacturing Purchasing Managers’ Index (PMI) of Hong Kong in June, coupled with growing uncertainty in the external environment, tightening financial conditions and slowing economic growth, have “caused local SMEs to become more conservative in their business confidence”, Cheung said.

All five component subindices recorded a decline, with business conditions and profit margins experiencing the most significant decreases to 44.7 and 41.5, respectively.

These indicate local SMEs have less confidence in their business turnover for this quarter. The subindex for the global economy fell by 8.0 to 40.3.

Kelvin Lau Kin-hang, Standard Chartered Hong Kong’s senior economist for Greater China, said, “Part of the setback in the overall index could also be due to frags from new economic headwinds, including the rise in uncertainty toward the mainland following its recent string of weak data indicating a softening growth momentum.”

According to S&P Global, Hong Kong’s PMI fell for five consecutive months to 49.4 in July, another drop from 50.3 last month, registering the lowest point since November.

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The rating agency said that since new orders in July have shrunk, companies have reduced their production in response. The balm is, however, businesses from overseas and the Chinese mainland have manifested a continuous climb, buffering the overall grim decline in economic activity.

Growing wages

Salaries of employees in Hong Kong’s small and medium-sized enterprises are continuing to grow in the third quarter, amid businesses grappling with severe labor shortages, according to the SME survey.

Thirty-four percent of the SMEs surveyed expect staff salaries to increase between July and September, rising by two percentage points compared to the second quarter

Thirty-four percent of the SMEs surveyed expect staff salaries to increase between July and September, rising by two percentage points compared to the second quarter. The predicted increase signals a surge of over 10 percentage points from the same period last year.

The survey unveiled that 88 percent of SMEs with hiring needs reported experiencing recruitment difficulties, including challenges in finding suitable candidates and a decline in the number of young individuals willing to enter their industry.

To tackle these issues, 31 percent of those enterprises are considering recruiting nonlocal talent, while an increasing number of SMEs are turning to artificial intelligence to automate manual tasks.

Human resources shortages are partly contributing to the increased investment in digital tools among SMEs. Cheung said the survey revealed that a growing number of firms are intending to either maintain or enhance their investments in IT systems and training programs focused on e-commerce or digital technology.

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More than 800 local SMEs were interviewed for the survey from various sectors, including manufacturing; the import and export trade; wholesale, retail, accommodation and catering services; information and communications; and real estate and construction.

Contact the writers at tianyuanzhang@chinadailyhk.com